How should you invest your downsizing windfall?

A colleague’s mother is thinking about ‘downsizing’. She has a small pot of pension money that gives her enough to live on, but would like some extra cash to enjoy a couple of nice holidays in the next few years.

Having lived in the same house for the past 47 years, there is a decent amount of equity to be had if she chooses to downsize – and also a decent-sized garden and too many rooms to maintain on her own. It seems a logical solution.

However, those 47 years also hold most of her life’s memories and she’s not the only one to have a strong emotional attachment to the bricks and mortar – her children have one too. Being recently bereaved, selling the much-loved family home is a really hard course of action to take.

She could rent the house out and rent something smaller herself. Although it would still mean leaving the house, it would remain hers and if she hates living somewhere else she can always go back. She could create a reasonable amount of extra income this way, but there are costs and responsibilities involved in being a landlord that need to be considered. Being in a small village there is also the question as to how easy it would be to find tenants. And of course, if she decides to sell at a later date, there could be capital gains tax to consider.

Equity release is also an option, but if she wants to leave some sort of inheritance to her children – which she says she does – it would seriously deplete what they eventually receive.

Selling = a lump sum

So, if she can take the plunge and downsize, where should she keep the lump sum she would gain? It could easily be £100,000 or more, which is a decent amount to invest and not one she will want to see decline in value.

Cash accounts are paying up to 2% if you look hard enough, but with inflation over 3%, in real terms you are losing money.

Gilts or other government bonds, which would historically have been the next port of call, are looking expensive as are corporate bonds.

Equity markets are also looking very expensive and I wouldn’t suggest for one minute that she invest the lot in the FTSE.

Learn more: How to protect your money when the market falls

What to do with it?

One option would be a few absolute return or lower risk multi-asset funds. Funds that aim to produce a positive return in any environment (although importantly this is not guaranteed) and which should be less volatile than equities.

FundCalibre favourites in this space include Church House Tenax Absolute Return Strategies, Premier Defensive Growth and Jupiter Distribution.

The Church House fund invests directly in assets (not funds) and is one of the few in the sector that targets an absolute return from diversification and risk management alone. It does not short sell any securities or indices for downside protection.

The Premier fund invests in assets that share two common characteristics: a predictable return and a defined term. This approach helps insulate the portfolio from changes in market conditions. It’s a strategy well suited to delivering low-risk positive returns.

The Jupiter fund is a multi-asset fund with around 70% in fixed income and 30% in equities. The two managers attend company meetings together and decide not only whether or not to invest, but if the investment would be best made via the company’s equity or debt. It is a strong contender for cautious investors.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.